TOKYO -- Japan's economy grew 12.7% on the quarter in the October-December period in annualized real terms, continuing its recovery from the coronavirus pandemic, preliminary data showed on Monday.
The country's real gross domestic product shrank 4.8% for the full 2020, according to the Cabinet Office -- the first contraction since a 5.7% plunge seen in the global financial crisis days of 2009. But the 2020 result was significantly better than the International Monetary Fund's prediction in October of a 5.3% drop.
The fourth quarter growth rate followed the record 22.9% expansion in the July-September quarter, when the government's Go To Travel campaign helped fuel the swift recovery. But while a resurgence of COVID-19 infections late in the year was a hindrance, the economy was nearly back to levels seen before the crisis in the fourth quarter of 2019.
"Japan's economy has mostly regained the pre-COVID level," observed Hideo Kumano, chief economist at the Dai-ichi Life Research Institute. He said the recovery "owes much to policy measures," including cash handouts. "Employment protection subsidies have kept unemployment low, and have helped keep up consumer confidence."
At the same time, Kumano conceded: "The pace of recovery may have been too fast. It caused a spike in infections in the fourth quarter."
The 12.7% fourth-quarter rise, or 3.0% increase on a seasonally adjusted quarterly basis, beat market predictions of 9.4% or 2.3%, respectively. This was the second straight quarter of growth after three consecutive declines.
Domestic demand increased by 2.0% while external demand, or net exports, rose by 1.0%.
Private consumption, which makes up more than half of Japan's GDP, had been a weak spot in the economy in recent years -- compounded by the latest consumption tax increase to 10% in October 2019. But the figure rose 2.2% in the last quarter after a 5.1% jump in the previous term.
Durables like air conditioners, air purifiers, cooking equipment and PCs sold well, as people invested in the homes where they now spend much of their working and leisure time. Last year's 100,000 yen ($950) government payouts to all residents further stoked such demand.
Japan's government also purchased and supplied large amounts of masks and other personal protective gear for health care workers.
But Kumano also noted that the domestic economy did have "winners and losers." Demand for services has not fully recovered, despite a pickup in travel during the now-suspended Go To subsidy campaign. And while consumers bought durables, Kumano said apparel shops and department stores have been hit hard as shoppers see less of a need to buy clothes.
On the export front, shipments of cars to the U.S. and China were especially strong. Exports of electronic components to China were also brisk, apparently thanks to Beijing's efforts to beef up its domestic technology industry.
One could argue that Japan should have done even better, considering its modest COVID-19 toll. The country has recorded about 415,000 cases and nearly 7,000 deaths. The U.S., meanwhile, only suffered a 3.5% GDP contraction for 2020 despite recording over 27 million infections and 485,000 deaths.
Nevertheless, with rising hopes for Japan's rebound and vaccinations on the way, investors have rushed to buy cyclical stocks. The benchmark Nikkei Stock Average at one point surpassed 30,000 on Monday morning, clearing that threshold for the first time since August 1990.